Actually, I want to skip over the minimum wage discussion (I'll come back to it) to address another issue in his column this morning. In his prelude to attacking the $15 an hour minimum wage Samuelson takes a swipe at the economic policies of the 1960s:

"Consider the 1960s. Economists convinced themselves — and the public — that, through government budgets and interest rates, they could minimize recessions and sustain “full employment.” Early success was astounding. By late 1968, unemployment was 3.4 percent. But this was simply an inflationary boom, not a sophisticated advance in economic management. Double-digit price increases soon surfaced. We spent 15 years (and four recessions) combating inflation."

This is close to incoherent. First, what does it mean to say "we spent 15 years (and four recessions) combating inflation." If he means that we had people in Washington concerned about inflation, he should probably had said 40 years. Much of the Republican party has been yelling about hyper-inflation even as the inflation rate remains stubbornly below the Fed's 2.0 percent target. 

Does he mean inflation was a problem? Well perhaps it was higher than was desirable for much of the 1970s and the first few years of the 1980s, but that hardly makes it a crisis. After all unemployment has been higher than desirable (as measured by the Congressional Budget Office's estimate of NAIRU) for most of the last 35 years. Furthermore, the four recessions line also doesn't make any sense. We had four recessions in the fifteen years before 1960 also.

Furthermore, blaming the inflation on the 1970s on the policies of the 1960s is more than a bit bizarre. The more obvious cultpit would be the quadrupling of world oil prices in 1973-74 when OPEC first flexed its muscles and then again in 1979-1980 when the Iranian revolution shut off oil flows from what was then the world's largest oil exporter. The sharp reversal of oil prices in the early 1980s, as more oil came on line and demand fell, was a major factor slowing inflation.

In fact, the 1960s were a decade of rapidly rising living standards for large segments of the population. Productivity was growing rapidly and most workers were getting wage gains in line with productivity growth, or close to 2.0 percent annually. That's more than most workers have seen in the last fifteen years.

This brings us the Samuelson's "minimum-wage madness." In the period from 1938 (when the federal minimum wage was first established) to 1968 the minimum wage tracked productivity growth. This means that it not only kept pace with inflation, but minimum wage workers shared in the gains of the economy's growth. If this pattern had continued, the minimum wage would be $18.42 an hour today.

Undoubtedly there would be large-scale unemployment if we were to try to quickly move to that wage today. Much has changed in the economy over the last 37 years and besides, it would take time for businesses to adjust. However the more modest goal of $12.00 by 2020 is certainly a reasonable target.

As Samuelson notes, there would be somewhat fewer jobs with this wage, but it is important to understand what this means. The jobs affected by the minimum wage tend to be high turnover jobs. People often hold them for only a few months at a time. In this context, fewer jobs will mostly mean that it takes people more time to find a new job when they leave another job or when they first start looking for work. That could mean that low wage workers get to work somewhat fewer hours over the course of a year than they would have liked, but when they do work they take home 65 percent more than if they were working at the $7.25 an hour minimum wage. Most would probably consider this a pretty good deal.

Samuelson is right that the minimum wage levels can be set too high where the loss of jobs more than offsets the benefits of the wage gains. Some cities may be moving into this territory now, but certainly the U.S. economy can support a minimum wage in 2020 than it more than one-third lower relative to productivity than the 1968 minimum wage.

Recent comments

  • Guest - Paul Mathis

    Samuelson is Disingenuous Job creation, as Keynes said, is a matter of increasing aggregate demand and the largest component of demand by far is consumption (70% of total demand in our economy). Thus, increasing the minimum wage would increase employment because consumption is increased disproport...
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  • The more obvious cultpit would be the quadrupling of world oil prices in 1973-74 when OPEC first flexed its muscles and then again in 1979-1980 when the Iranian revolution shut off oil flows from what was then the world's largest oil exporter. I agree that monetary policy has been to tight since 20...
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  • Guest - sherparick

    Samuelson is another reason I don't want to subscribe to the Washington Post. He is actually misleading his readers on this point. The serious inflation outburst happen under President Nixon following his imposition of price and wage controls in 1971 and Nixon's Appointee as Chairman of the Fed, A...
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Last week the Washington Post again editorialized in favor of reforming the Social Security disability program by either reducing benefits and/or raising disability requirements. The editorial noted the reallocation of funds from the Old Age and Survivors Insurance program to the Disability program twenty years ago and told readers;

"The last tax reallocation, 20 years ago, 'was intended to create the time and opportunity for such reforms,' as the Social Security trustees’ report puts it; it would seem that the time, and the opportunity, are finally here."

In fact, it is not clear that there is any fundamental problem with the disability program that requires reform. If we go back to 2008, before the collapse of the housing bubble brought the economy to its knees, the disability program was in far better shape. It was projected to be able to pay scheduled benefits through the year 2025. Its projected shortfall over the program's 75-year planning horizon was just 0.24 percent of covered payroll or just over 12 percent of the program's projected revenue.

But even this projected shortfall was largely due to something that had been unexpected back in 1983 when the Greenspan commission made their recommendations to Congress for reforming Social Security. The commission had expected that 90 percent of wage income would be below the tax cap set at the time and therefore subject to Social Security taxes. This turned out to be mistaken as there was a sharp upward redistribution of wage income in the 1980s which continued into the next two decades. As a result, the program took in considerably less revenue than had been projected.

The figure below shows the difference below shows the difference year by year between the revenue the program would have received if 90 percent of wages had been subject to the tax and the revenue actually collected by the Disability Insurance (DI) trust fund. (The calculations also add in 6 percent interest on past revenue, which was roughly the interest rate on government bonds at the time.)

Recent comments

  • Guest - Last Mover

    Talk about kicking those already down and out, WaPo makes the usual slur that the disabled are encouraged to lay in the free rider comfort hammock of subsistence living rather than seek work. After having their pay and benefits siphoned off for upward redistribution like all blue collar labor for t...
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  • Guest - Tom Stickler

    When was the last time the cap on taxable wages for Social Security was increased to bring us closer to the 90% goal?
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It really is amazing how the self-proclaimed intelligent people (in contrast to those who make "idiotic" arguments) are prepared to make arguments that are totally protectionist in their nature in support of the Export-Import Bank. Joe Nocera gives us a parade of greatest hits in his column today.

He starts by telling us that the Ex-Im "supports tens of thousands of good American jobs." Guess what folks? If we had a tariff on imported cars, the tariff would also support tens of thousands of good American jobs.

But wait, Nocera goes on to tell readers:

"The Ex-Im Bank that in its last fiscal year generated enough in fees and interest to turn over $675 million to the Treasury. Why would anyone in their right mind want to put such a useful agency out of business?"

Let's see, last time I looked tariffs also raise money. So Nocera convinced me, we should support tariffs on cars -- of course that would only be true if he were intellectually consistent.

Recent comments

  • Guest - ltr

    Adding a word: Actually, someone would should explain to Nocera the idea of interest rate arbitrage so he would [stop] saying silly things about the Ex-Im Bank.
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  • Guest - John Wright

    It is interesting to look at a document titled "Boeing in China" that is on the Boeing.com site. http://www.boeing.com/resources/boeingdotcom/company/key_orgs/boeing-international/pdf/chinabackgrounder.pdf This has that "China builds horizontal stabilizers, vertical fins, the aft tail section, door...
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  • Guest - Last Mover

    Jim McNerney, the chairman of Boeing, noting that the Ex-Im Bank helps keep manufacturing jobs in America, wrote recently in Politico, “I never thought I’d see the day that U.S. companies would, in effect, be penalized by their own government for not setting up shop overseas and, in the case of Boei...
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Steve Rattner is right that the baby boom generation failed millennials, but he has the reason wrong. He argues that we failed the millennials because they may have to pay higher taxes to support our and their Social Security and Medicare.

It's hard to see the story here. We baby boomers have to pay much more in Social Security and Medicare taxes than did our parents and grandparents. Did they do us some horrible injustice? We do enjoy higher living standards and longer life spans, so what's the injustice if we pay another 2-3 percentage points of our wages in taxes? If there is some moral wrong here, it's difficult to see.

On the other hand there is the real problem that most millennials are not seeing real wage gains. This has nothing to with Social Security, it has to do with the fact that baby boomers let incompetent Wall Street types run the economy for their own benefit. This crew gave us the stock bubble in the 1990s and the housing bubble in the last decade. They also have given us an over-valued dollar. This creates a trade deficit that makes it virtually impossible to get to full employment without bubbles.

The net effect of the Wall Streeters policies has been the weak labor market of the last 14 years, which along with other policies has led to the bulk of the gains from economic growth going to the top one percent. Baby boomers should apologize for this upward redistribution, but the burden of Social Security is a molehill by comparison. If so much money was not being redistributed upward, real wages would be rising by 1.5-2.0 percent annually, taking 5-10 percent of these wage gains to cover the cost of longer retirements would not pose any obvious problems.

 

Addendum

I should have also pointed out that Rattner repeats the nonsense claim that Social Security could save any substantial amount of money by taking away benefits from wealthy seniors. If we define "wealthy" to be a non-Social Security income of $80,000 per person (less than half the cutoff for "wealthy" when President Obama raised taxes in 2013), the program could save just over 1 percent of its spending by phasing out benefits for higher income individuals. While it is possible to get lots of money by taxing rich people, it is not possible to get much money by taking away their Social Security since they don't get much more than the rest of us. Rattner's plan can only save much money for the program if he wants to take away benefits from middle income people.

Recent comments

  • Guest - rich

    Why do we continually seek future guidance by those that have proven themselves conflicted? Ex-car czar Steve Rattner settles pay-to-play scandal The former car czar and private equity boss today agreed to pay $10 million in restitution to the State of New York, for his role in the state’s public ...
    3
  • Guest - William

    The current myth is that social security will go bust because it is an unpaid entitlement. The truth is that politicians spent the trust fund for general government expenses because they didn't want the electorate to be taxed enough to pay for the programs. Rather then borrow the trust fund with int...
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  • SS is a welfare program and we should try to make it efficient, so everyone who starts getting it at a given age should get the same amount
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The Labor Department reported that the Employment Cost Index rose by just 0.2 percent in the second quarter. This brings the growth in the index over the last year to 2.0 percent. This undermines any claim that wage growth is accelerating.

With inflation still well under the Fed's target of 2.0 percent as an average rate of inflation (not a ceiling), and wage growth remaining flat or possibly even falling, the Fed would have little basis for raising interest rates to slow the economy. With this most recent report it seems likely that the Fed will put off a rate hike until the end of the year at soonest.

Recent comments

  • Guest - Dean Baker

    Sirus, 2.0 percent is the target for inflation, not wage growth. The difference is productivity growth. In the recent past (1995-2005) this was close to 3.0 percent annually. Even in the slowdown period (1973-1995) it was 1.5 percent annually. So 3.5 percent wage growth or better should be consiste...
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  • Guest - Sirus

    2.0% is the target. Sorry Baker, another fail for you. Lets note higher rates would likely expand debt. Sorta getting the picture yet? You don't seem to get "rates" mean more than you think.
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  • Guest - Jesse

    The Fed wants to raise rates pretty badly at least one time this year. And unless the wheels fall off the real economy I think that September is a go, without regard to the data. The Fed is focuses more on its own internals and the banking system than the real economy, and especially real wages....
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And the Fed and corporate governance structures. That is the implication of his column where he describes the debate over inequality as a debate "between people who think you need strong government to defeat oligarchy and those who think you need open competition."

Actually, his side in this debate thinks you need a strong government to enforce patent and copyright monopolies, jailing any potential competitors. It believes you need a strong government, in the form of a central bank, to slow the economy any time the demand for labor gives ordinary workers enough bargaining power to push up wages and demand better conditions from employers. And Brooks believes that the government should set rules for corporate governance that essentially allow top management to set its own pay, since it effectively controls the boards that set their pay.

It is these and other man-made rules that have given us an economy in which a very small segment of the population enjoys the bulk of the gains from the economic growth of the last thirty five years. (You can get more of the story in The End of Loser Liberalism: Making Markets Progressive.) All of these rules could easily be different. For example, we could rely on tax credits rather than patent monopolies to fund research along with more direct funding through entities like the National Institutes of Health (which is strongly supported by the pharmaceutical industry).

It is undoubtedly convenient for Brooks' side to pretend that the rules put in place to redistribute income upward are simply the natural workings of the market, but it is not true. It's unfortunate that the NYT can't find a columnist who would defend these rules on their merits rather than make an absurd claim that they are somehow facts of nature.

Recent comments

  • Guest - djb

    "more direct funding through entities like the National Institutes of Health (which is strongly supported by the pharmaceutical industry). " as long as, after the government pays for all the risk involved in research, the patents are given to the drug companies who are allowed then to charge whate...
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  • TINA is the invariable response of ideologues bereft of reality-based arguments.
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  • Guest - pieceofcake

    and I thought the following was the essence of Mel Brooks article; 'The coming debate about capitalism will be between those who want to restructure the underlying system and those who want to help people take advantage of its rough intensity. It will be between people who think you need strong gove...
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I'm not kidding, this is what he criticized Senator Bernie Sanders for in a Vox piece today. He apparently views it as outrageous that Sanders, a candidate for the Democratic presidential nomination, doesn't think that the United States should open its borders so that every person who in the world who wants to come and work in the United States has the opportunity to do so.

On the one hand Matthews has a point, there is an injustice in that people who were born in the United States are able to enjoy a better and longer life than people who had the misfortune to be born in a poor country in Africa, Asia, or elsewhere in the developing world. On the other hand, it is hard to see that as a greater injustice than saying that people who were born in wealthy and educated families in the United States, that could give their children the wealth and social training to enjoy a high living standard, have a right to a better standard of living than children who were born to less privileged families. Of course these children of privileged families will benefit from having more less-educated immigrants in the country since it will mean they have to pay less for their nannies and to have their lawn mowed and their house cleaned.

This problem can be solved much more easily than worldwide inequality. For example, let's eliminate the patent and copyright monopolies that redistribute so much income upward to these privileged children. Let's alter the licensing restrictions that ensure doctors and lawyers get outlandish pay. (We can use a lot more immigrants in these areas and the gains are large enough to have repatriations of a portion so that the home countries of these foreigners benefit as well.) And we can have the Fed not raise interest rates to keep the less privileged children from getting jobs.

Anyhow, we all have to decide for ourselves which injustices we find most worth fighting.

Recent comments

  • Guest - chmoore

    Well, the references & references to other references in the Matthews Vox link are kind of weighty for average readers; but it does sound generally utopian. Also it sounds heavier on theory than historical reality; where are the examples of migrations between multiple countries with multiple ty...
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  • Guest - pete

    I found it refreshing that Bernie simply said fu to the less developed world. Most folks discussing trade agreements are not so honest. The monstrous capital/labor imbalances have to be adjusted. Either capital going there, as China is doing more aggressively, or labor coming here, as many want...
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  • Guest - skeptonomist

    You can argue from an extreme humanitarian position that the world economy should be completely flat or globalized - that starving workers in Bangladesh as well as Mexico should have the same chance at jobs in the US, or making products sold in the US, as native Americans. You might also argue on t...
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In a Wonkblog post, Ana Swanson complained that people are not sufficiently worried about the wealth gap by age. This should rate high on the list of items for people not to worry about. The basic reason is simple, for most people wealth is not a very good measure of their well-being and furthermore, the meaning of "wealth" has changed substantially over time.

If that sounds strange, let me make it simpler. If we go back thirty years, most middle income retirees could count on getting a substantial amount of retirement income from a defined benefit pension. Today that is much less likely to be the case. This means that to maintain the same standard of living in retirement, someone reaching retirement age would need much more wealth today than was true thirty years ago. They are also likely to need considerably more money, relative to their income, to cover health care costs since Medicare covers a much smaller share of health care costs today than it did thirty years ago. For this reason, the sort of comparison of the wealth of retirees or near retirees shown in the figures in this blog are not very useful for showing trends in wealth through time. 

There is a similar story for young people. Young people never had much wealth so whether a 30-year-old has 40 percent more or less of a net worth of $8,000 is not going to mean much for their life's prospects. Furthermore, measured wealth may actually be inversely related to a young person's economic prospects. While someone who accrued $30,000 in student loan debt getting a degree (or possibly not getting a degree) from Corinthian College is in bad shape, a person who ran up $150,000 in debt getting a Harvard MBA is likely to do just fine.

For these reasons, the wealth of young people is not a very useful measure. We can look at their income and see how that has changed over time. That does not look good for high school grads, nor even people with a college degree. This should provide a serious basis for concern about the economic well-being of the young, much more so than their lack of wealth.

Recent comments

  • That does not look good for high school grads, nor even people with a college degree. This should provide a serious basis for concern about the economic well-being of the young, much more so than their lack of wealth. Handle the stats in those charts with care. Some of the decline is caused by the...
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  • Guest - Marko

    The graphics in that Wonkblog piece are worthless , but the message is not , in fact it's spot-on. A 40-yr-old had a real net worth of $70-80 k in the 80s while today's 40-yr-old has about half that. I'm sure they'd consider that a meaningful decline , especially since real gdp and total wealth have...
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  • Guest - skeptonomist

    Many young people are starting out with negative wealth because of education debt, but there is a lot of talk about this, for example by Elizabeth Warren. Several things have influenced this, including state budget cutbacks, the proliferation of predatory for-profit colleges and the private college ...
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Paul Krugman rightly mocks Jeb Bush for taking credit for the strong growth in Florida during his tenure as governor. As Krugman points out, the reason for the strong growth was that Florida had one of the worst housing bubbles in the country. Its collapse gave Florida one of the worst downturns in the country. (I had made the same point a couple weeks earlier to a reporter fact-checking Bush's claim on growth.) The weak banking regulation that facilitated the bubble is not the sort of thing you would think the Bush campaign wants to boast about.

But it is not just Governor Bush who is prone to boasting about bubble driven growth. The boom in the last four years of the Clinton presidency was largely driven by the stock bubble that developed in these years, with price to earning ratio rising to levels not seen since the 1920s. The collapse of this bubble gave us the recession in 2001. While this downturn was very mild if measured by GDP, from the standpoint of the labor market it was quite severe. We did not get back the jobs lost in the downturn until January of 2005. Until the more recent recession this was the longest period without job growth since the Great Depression.

The interesting lesson from the 1990s boom was that the economy could sustain much lower rates of unemployment than had been previously believed. The unemployment rate hit 4.0 percent as a year-round average in 2000, most economists had previously argued that the unemployment rate could not fall much below 6.0 percent without causing spiraling inflation. This indicated that as a supply side matter, the economy could support the high levels of employment/low levels of unemployment of the late 1990s.

However, the problem is the demand side. The channels to create the demand needed to get to low rates of unemployment — either larger budget deficits or lower trade deficits caused by a lower valued dollar — are blocked politically. (We could also look to reduce work hours through work-sharing, more vacation, paid family leave, etc.) This means that we may not see a strong labor market, like the one of the late 1990s, for some time. 

But the key point here is that both parties are happy to take credit for bubble driven growth. Maybe there can be a quid pro quo where Jeb Bush will stop taking credit for the growth generated by the Florida housing bubble and the Democrats stop taken credit for the bubble driven growth of the Clinton years.

Recent comments

  • Guest - John

    It would also be nice if politicians would not ramp up spending during bubbles as if they would never end. California has a particular bipartisan addiction to this way of governance. Jerry Brown has made some weak efforts to set up rainy day funds, but his own party has stymied his efforts at every ...
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  • Greenspan did OK, Bernake made mistakes. Politicians are full of hot air. Scott Sumner has convinced me that bubble talk is probably a mistake. It is not a bubble if the Fed keeps NGDP up and prices do not fall.
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  • Guest - MightyMike

    Isn't it usually stated that the wealth effect from stock market booms is not that great? A quite large portion of stock market equity is owned by just a few percent of all Americans. My understanding is that a stock market bubble doesn't typically cause those people to dramatically increase their c...
    1
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Actually, after running many near hysterical pieces on the horrors of the Social Security disability program, yesterday's editorial was reasonably moderate. Nonetheless, it concludes by telling readers:

"Though hardly the sole, or leading, cause of declining labor-force participation in the United States, SSDI is nevertheless a factor. Reforming it could raise the economy’s potential growth, as well as millions of people’s life prospects. The pending crisis creates an opportunity for bipartisan compromise, in which Congress diverts more money to SSDI — linked to structural changes. The last tax reallocation, 20 years ago, 'was intended to create the time and opportunity for such reforms,' as the Social Security trustees’ report puts it; it would seem that the time, and the opportunity, are finally here."

There are a couple of points worth making here. First, the reason that the program is projected to face a shortfall next year, rather than a decade from now, is due to the fact that we had incompetent people at the Fed and Treasury who were not able to recognize a $8 trillion housing bubble and that its collapse would do serious damage to the economy. If they had recognized this fact, they would have taken steps to stem its growth before it posed such a danger to the economy. If we had stayed on the pre-recession growth path, the program would be fully funded through 2025.

The other obvious problem with the Post's position is that it implies that the Disability program is too generous. In fact, the United States ranks near the bottom among wealthy countries in the share of GDP that goes to disability insurance.

There is a point that the program could be better structured to make it easier for people on disability to re-enter the labor market. Some steps have already been taken along these lines in recent years, but undoubtedly more can be done.

 

Note: The link to Eurostat data on spending on disability insurance as a share of GDP was broken. I replaced it with an link to OECD data, which is to a broader category (would include SSI), but should give the general story.

Recent comments

  • Why would one care what percent of GDP it is? Why not rather compare PPP levels of recipients? Never the less I think we agree that recipients should be allowed to work as much as they want and not loose benefits. Better yet replace most of it with a BIG (Basic Income Guarantee).
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  • Guest - Ross Boylan

    So the article thinks increasing labor supply will improve US growth rates. The last 7 years suggests the problem is not that we need more workers, but that we need more jobs.
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  • Guest - ltr

    The Eurostat link does not lead to disability insurance as a share of GDP; evidently the link has been changed and I cannot find the correct link. Thanks so much, as always.
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Clive Crooks apparently thought he stumbled on some new revelation when he read a piece by Robert Lawrence at the Peterson Institute for International Economics. Lawrence showed that we look at the pattern in average wages, and use a net measure of productivity (rather than gross), and a common deflator for adjusted wages and output, real wages kept pace with productivity growth, at least until the Great Recession.

I suppose Lawrence deserves some sort of congratulations, it took him less than a decade to replicate our work. Of course progressive economists had long known that the story of wage stagnation was overwhelmingly a story of redistribution among workers, from factory workers and retail clerks, to doctors, bankers, and CEOs. For this reason, the fact that average compensation had kept pace with productivity was hardly news to any of us, but I suppose the fact that Robert Lawrence and his centrist colleagues are now discovering this fact may qualify as news.

Recent comments

  • Guest - skeptonomist

    Lawrence claims "If there is something about the American economy that has kept workers from maintaining their share in output as the economy expands, this phenomenon has materialized only relatively recently" and " the decline in labor’s share in income only began in 2000". Actual income data tell...
    1
  • Guest - pete

    A different spin on more or less the same subject: http://econbrowser.com/archives/2015/07/firm-specific-factors-in-rising-income-inequality
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  • Guest - Last Mover

    Let the brainwashing continue. The middle class must understand that average wages are like average temperature. With head in the oven and feet on a cold floor, temperature on average is just right for the average American to make a decent living. LOL.
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Apparently the NYT believes it does. A lengthy article on the growth of Chinese foreign investment told readers:

"But the show of financial strength [foreign investment by China] also makes China — and the world — more vulnerable. Long an engine of global growth, China is taking on new risks by exposing itself to shaky political regimes, volatile emerging markets and other economic forces beyond its control.

"Any major problems could weigh on China’s growth, particularly at a time when it is already slowing."

Usually investing in other countries is thought to both increase returns to the country doing the investment and diversify risks, since it is unlikely that foreign countries will be subject to the same problems that may be hitting China (or the U.S.) at the same time. It is interesting that the NYT seems to hold the opposite perspective.

The piece seems to imply that China is unusual in the demands it makes on the countries in which it invests:

"China is forcing countries to play by its financial rules, which can be onerous. Many developing countries, in exchange for loans, pay steep interest rates and give up the rights to their natural resources for years. China has a lock on close to 90 percent of Ecuador’s oil exports, which mostly goes to paying off its loans."

The United States took the lead in establishing the International Monetary Fund, which often acts as its agent in disputes. For example, in the East Asian financial crisis the I.M.F. imposed very detailed programs on the countries of the region, which set tax and spending schedules, changed regulations throughout the economy, and required the privatization of various industries. The conditions placed by China on the countries in which it invests may be different, but there are not without precedent.

The piece also bizarrely implies that labor abuses by U.S. companies or their contractors is a thing of the past, telling readers:

"Chinese mining and manufacturing operations, like many American and European companies in previous decades, have been accused of abusing workers overseas."

Of course there are many places in the world, most notably Bangladesh and Cambodia, where there are regular reports of workers, often children, working long hours in dangerous conditions to make goods under contract with U.S. corporations. Sometimes these workers are held against their will and have their pay stolen by their employers. This is an ongoing problem, not a historical concern.

In discussing the new Chinese infrastructure bank the piece tells readers:

"Washington is worried that China will create its own rules, with lower expectations for transparency, governance and the environment."

It would be helpful to know who in Washington says they are worried about these issues. Presumably all of Washington does not have these concerns. Also, just because politicians say these are their concerns, it doesn't mean they are their actual concerns. For example, it may just be possible they fear competition from a Chinese investment bank.

 

Thanks to Keane Bhatt for calling this piece to my attention.

 

Note: I edited this to make it clear that the labor abuses in Cambodia and Bangladesh are occuring at factories that produce items for U.S. corporations.

Recent comments

  • Does Foreign Investment Make the U.S. Economy More Vulnerable? Apparently the NYT believes it does This sort of idea dies hard and successful politicians use it to get power. It is one reason why we should try to circumscribe Government Power and activity....
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  • Guest - skeptonomist

    The main danger to China itself is simply overexpansion, which tends to occur whenever growth is rapid. This is what happened to Japan. In the 80's it looked like Japan's business methods were infallible and that was headed for world domination. Then things collapsed and Japan has never been the s...
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  • Guest - Jesse

    NYT apparently repeats the 'official story' no matter how contrived it may be. This sounds like something I might have heard in the 1970s. http://www.dailykos.com/story/2015/07/24/1405282/-From-Yesterday-s-NYT-Sandra-Bland-Prosecutor-Inadvertenly-Shows-His-Cards...
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That's the assertion at the end of Robert Samuelson's piece on the 50th anniversary of the creation of Medicare and Medicaid. Samuelson tells readers:

"By 2030, the number of Medicare beneficiaries is projected to reach 81 million, an almost 50 percent increase from today. Meanwhile, higher health spending has squeezed other programs. That’s an ironic footnote for the triumph of ’65: By threatening the rest of government, the instruments of a liberal agenda — Medicare and Medicaid — have bred illiberal consequences."

In fact, the federal government spends considerably more, as a share of GDP, on education than it did before Medicare and Medicaid were created. There have also been expansions of spending in other areas, most notably the insurance subsidies in the Affordable Care Act. It is not clear that we would be spending more money in other areas if we did not have Medicare and Medicaid. It is possible that the success of these programs make the public willing to support spending in other areas. 

Addendum:

Robert's comment reminds me of the obvious point that I should have included originally. Because seniors have most of their health care costs covered by Medicare, they have more money to pay for other things, like taxes for other government services. Samuelson is effectively arguing that if people had their taxes reduced by the amount they pay for Medicare and Medicaid, but had their health care costs increase by an even larger amount (Medicare is far more efficient than the private health care system) then they would be willing to pay more in taxes for other services. There is no reason to believe this is true.

Recent comments

  • Guest - james oneill

    as governor of california ronald regan conservatives in their war on public education....i have always seen their campaign against public education as part of their "whiteness" thing
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  • Guest - Haynes

    Dean: I think Samuelson has a point with respect to medicaid at the state level. In Ohio it has been well understood by faculty that rising medicaid costs have crowded out support to higher education, and that seems to be true in other states as well. This is a point that you could address....
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  • Guest - Bloix

    The goal is to keep trying to light an intergenerational conflict in order to pull young people over to the right. Facts don't matter when you've a political fight to win.
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A New York Times article may have misled readers by implying that a state or local government with inadequate pension funds is relieved of its pension liabilities. In the context of a court ruling on the constitutionality of a plan negotiated between the city of Chicago and most of its unions, the article told readers:

"An insolvent system would be able to pay retirees only about 30 percent of their benefits. The cuts before the court were less drastic, and in combination with other changes, were supposed to leave the workers and retirees better off."

Actually the city is still legally obligated to make the full payment for workers' pensions even if the funds are depleted. In this case the payment would have to come directly from current revenue or the sale of assets. Workers may in fact be better off with a reduced pension in the sense that they would care about the city's ability to pay current workers, in addition to retirees, and also its ability to provide necessary services, however it is wrong to imply that the insolvency of the pension funds would end the city's obligations to retired workers. 

Recent comments

  • Guest - Larry Roberts

    "Actually the city is still legally obligated to make the full payment for workers' pensions even if the funds are depleted. In this case the payment would have to come directly from current revenue or the sale of assets." This doesn't seem helpful. At what point is the city entitled to file for b...
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  • Guest - sinclair

    The risk is that the burden causes an exodus of taxpayers and there is no recovery from that problem without bankruptcy and a fresh start.
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  • Guest - pete

    They may be "legally liable", but in some instances there simply may not be enough assets to sell or taxes to collect Do the math. Orange County defaulted on its bonds. They were legally liable to pay the bond holders, but they decided not too. They had plenty of assets, could have raised the pr...
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The Washington Post reported on a speech by former Secretary of State Hillary Clinton in which she decried corporate America's short-term focus and called on companies to invest in their workers. She did not indicate any specific proposals for bringing this about. In an earlier speech she had suggested tax incentives to promote profit sharing.

It actually is not hard to give companies more incentive to invest in their workers, we can just make it harder for them to fire them. According to the OECD the United States has by far the weakest employment protection legislation, meaning that it is extremely easy to fire workers. The United States is the only country in which even long-term workers can be fired immediately for no reason and with no compensation.

Laws that imposed some cost for firing long-term workers would give companies more incentive to invest in workers and ensure that their productivity continues to rise. This is a very simple and well-established mechanism that is likely to be far more direct than any tax scheme that Ms. Clinton might put forward.

While she has not put out any specifics of her plan to promote profit sharing, it is worth noting that Carter administration tax incentive to promote employee ownership has largely been used as a tax break for creative owners. For example, when Sam Zell bought up the Tribune Company in 2007 he used the money in the workers' pensions to create an employee stock ownership plan, which provided much of the money for the purchase. While this did nothing to give workers any effective control of the company, it potentially provided enormous tax advantages to Zell. (Since the company lost money, he turned out not to need the tax break.)

Recent comments

  • Guest - sglover

    Like almost everyone here I'm a huge admirer of Dr. Baker. But here I think he's way too verbose. If the theme is "Will Hillary Clinton Have a Serious Plan to Persuade Companies to Invest in Workers?", you can write that entire article with a single consonant and a single vowel. Hint: The conson...
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  • No. If Hillary wanted to show us she would help workers, she would have opposed the TPP. She didn't. Her (and Bill's) Wall St. friends matter more. ~
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  • Guest - Dave

    I'm tired of seeing politicians call for better behavior by corporate executives. The current view of capitalist success demands that existing corporate executives ignore this. Is this a political calculation, a carefully designed message of known impotence? It doesn't matter. Calling on corpora...
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Bloomberg got into the act today with a quote from a Chinese economist telling readers:

"'A lot of entrepreneurs probably have invested in the stock market and now they have seen a significant loss,' Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a Bloomberg Television interview. 'As a result business confidence has lowered. In the past, sentiment tends to have a lot of impact on this survey.'"

The problem with story for arithmetic fans everywhere is that people only lost money on what they have invested since April. The Shanghai stock market is still up by more than 25 percent since the start of the year and nearly double its year ago level. In other words, not many people could be on net losers in this story, even if they are not quite as rich as they hoped to be.

Recent comments

  • Guest - rakeshwahi@gmail.com

    there is problem with stock market- leverage.people tend to load up on leverage and losses are much bigger. The g=big drops in the market are always bad
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  • Guest - pieceofcake

    'There is more to this story than you are letting on China currently is running one of the most interesting experiments concerning 'housing bubbling' -(should be totally Mr. Bakers field of interest?) Like what if a country just tries to ignore that it has a huge housing bubble? Like in the US or i...
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  • Dean, Yes, the NYT does not quite have things right, but there is also good reason to think that there are some serious problems going on in China that are spilling out into the rest of the world economy. The cessation of the stock market crash (after the more than doubling over the past year) by ...
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This NYT article on various state bills calling for drug companies to reveal their spending on research for high-priced drugs might have been a good place to mention that we have alternatives to patent financing for prescription drug research. For example, the federal government already spends more than $30 billion a year on research through the National Institutes of Health. If this sum were doubled or tripled, it could likely replace the patent supported research now being done by the drug industry.

And, since the research was all paid for upfront, the great new drugs developed for cancer, AIDS, and other diseases could all be sold as generics. Then we would not face tough decisions about whether to pay for expensive drugs for people who need them. We also would have eliminated the incentive for drug companies to mislead the public about the safety and effectiveness of their drugs.

Recent comments

  • Sovaldi: Hepatitis C can be wiped out for $300 billion (that's a "b") -- the same amount we now pay for all other prescriptions. Cost to manufacture: half a billion dollars. http://www.medicalnewstoday.com/articles/280635.php Now comes: "Amgen scores a victory for PCSK9, halving cardio risks after ...
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  • Guest - Jennifer

    "The pharmaceutical and biotechnology industry trade groups say the transparency bills would be costly to comply with and would provide misleading information." Haha yeah it'd be an effort to tally those numbers and have to deal with the fallout when the public realizes what a scam it all is. But IN...
    1
  • Guest - Last Mover

    What? The NIH is socialism plain and simple, with an incentive to create useful drugs at economic cost free of economic rent for the masses, not exotic drugs designed to collect obscene prices. When the public has access to its drugs right out the gate as generics that is theft of intellectual pro...
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The NYT gave us a bit of the old "he said, she said" in an article reporting on the Obama administration's latest push for reauthorizing the Export-Import Bank. It told readers:

"While opponents contend that most of the bank’s money benefits corporate giants like Boeing, General Electric and Caterpillar, the small-business owners invited to the White House underscored supporters’ counterargument that most of the bank’s beneficiaries are smaller companies. Mr. Obama’s guests included the owners of Love & Quiches Gourmet in New York, Ferra Coffee in Texas and Bob’s Red Mill in Oregon."

Of course the opponents are right. The largest beneficiaries include companies like Boeing, Caterpillar and other huge companies. In a typical year the fifteen largest beneficiaries will get more than 85 percent of the bank's loans or guarantees and often more than 95 percent.

If President Obama and other supporters of the bank were actually concerned about the smaller companies who are the bulk of the bank's beneficiaries it could presumably propose that the bank be reauthorized with a cap of something like $10-20 million on loans per beneficiary. This would ensure that the small companies who were President Obama's guests could still get their loans, without giving taxpayer handouts to some of the country's biggest companies.

The article concludes by telling readers:

"'The Export-Import Bank makes money for the U.S. government,' Mr. Obama said, referring to the loan repayments and proceeds from borrowers. 'This is not a situation in which taxpayers are subsidizing these companies.'

In a fully employed economy (i.e. one in which the Federal Reserve Board is raising interest rates to slow the pace of job creation and economic growth) a below market interest rate loan that is issued or guaranteed by the Export-Import Bank is pulling capital away from other uses. This means that companies not favored by the Export-Import Bank will pay higher interest rates on their loans because of the loans supported by the Export-Import Bank. This is in effect a tax on other borrowers to support the companies getting loans from the Export-Import Bank.

Every economist in the Obama administration knows this to be true. It would have been helpful to point this fact out to readers who might otherwise believe that the Export-Import Bank has free money as President Obama appears to be claiming.

Recent comments

  • Guest - John Wright

    Obama is old enough and experienced enough to know that if, as he relates, "The bank makes money for the U.S. Government", then, if the Ex-Im business is profitable on a risk adjusted basis, it should also make money for a private industry banking group doing the same function. The banks have abou...
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You've got to admire those Silicon Valley boys, they hire one of President Obama's top political advisers as a lobbyist, put out misleading studies on drivers' pay, and now they are trying to get their drivers to lobby to reduce their own pay.

The context for the latter was their urging of their "partners" to come to a rally against New York Mayor Bill de Blasio's decision to freeze the number of new cars for hire that Uber and other Internet based companies can put on the city's streets. De Blasio was ostensibly putting in place this freeze to reduce congestion.

Whether or not the freeze is justified, one thing that is straightforward is that it would act to protect the earnings of existing Uber drivers in the same way that it would protect the earnings of the incumbent taxi industry. With fewer taxis on the road, there will be more passengers for each driver. This is likely to make an especially large difference for Uber drivers since its surge pricing model will lead to automatic fare increases when cars are in short supply.

This means that Uber was effectively asking these drivers to demand that the city cut their pay. I guess we'll see if it works, maybe it really is a new economy.

Recent comments

  • Guest - dax

    @Tew, who said that Uber "wants the market to clear." No, Uber wants as many Uber drivers as possible, because that maximizes its fee structure.
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  • Guest - c1ue

    I would suggest looking at the article where Emily Guendelsberger wrote up her personal experiences as an undercover Uber driver: http://citypaper.net/uberdriver/ Her personal experience in Philadelphia? $10 or less net pay. I've done firsthand driving for research as well. In SF - before the last 2...
    1
  • To bad we do not have UBER for MD's, JD's, Executives and especially politicians. But Dean, I think you are trying to hold back the wind. Medallions are less important when drivers are rated by passengers. If you win your battle with Uber, it will be like Napster, Napster is gone but people still ...
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This one needs a really big "oy." The lead headline of the Huffington Post tells readers that "child poverty higher now than great recession." This is based on an AP story headlined "more U.S. children are living in poverty than during the great recession." This article is in turn based on the annual Kids Count Data Book that is produced by the Annie E. Casey Foundation.

It turns out that this is not quite the story as the second paragraph of the article indicates:

"Twenty-two percent of American children were living in poverty in 2013 compared with 18 percent in 2008, according to the latest Kids Count Data Book, with poverty rates nearly double among African-Americans and American Indians and problems most severe in South and Southwest."

Note the comparison is with 2008, the beginning of the recession, not the trough of the recession in 2010. By any measure the recovery from this recession has been slow and weak. (It is hard to recover from recessions caused by bursting asset bubbles.) 

Almost eight years after its onset we would still need another three million jobs to restore the prime age employment rate to its pre-crisis level. And median wages are still below their pre-crisis level. But the child poverty rate is at least moving in the right direction in the recovery, even if way too slowly. And even the pre-recession level was ridiculously high. Anyhow, the real story is bad enough, it's not necessary to exaggerate.

Recent comments

  • I'm sorry but I'm unimpressed.
    1
  • Guest - Justin

    @Dishwasher We recovered better from 2001 based on debt and the enormous bubble that was developing in housing. Remember that?
    1
  • Guest - Sirus

    Sorry, but that is 2013. What it is in 2015? It wasn't that low in 2007 and frankly since 1980. This is another hype article that mumbles way to much. Recession Reblession. Child poverty is a estimation and overcalculation. Not impressed.
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Those folks at the Wall Street Journal are really turning reality on its head. Today it ran a column by Robert Ingram, a former CEO of Glaxo Wellcome, complaining about efforts to pass "transparency" legislation in Massachusetts, New York, and a number of other states. This legislation would require drug companies to report their profits on certain expensive drugs as well as government funding that contributed to their development.

Ingram sees such laws as a prelude to price controls. He then warns readers:

"There is no surer way to bring pharmaceutical innovation to a halt in the U.S. than letting governments decide how much companies can charge for their products or harassing them into lower prices. It also represents a fundamental misunderstanding of how pharmaceutical research works. Scientific discoveries involve trying and failing, learning from those failures and trying again and again, often for years."

Ingram bizarrely touts the "flowing pipeline of new wonder drugs spurred by a free market," which he warns will be stopped by "government price controls." This juxtaposition is bizarre, because patent monopolies are 180 degrees at odds with the free market. These monopolies are a government policy to provide incentives for innovation. Mr. Ingram obviously likes this policy, but that doesn't make it the free market.

Of course there are other ways that the government can finance research and development, such as paying for it directly. It already does this to a large extent. At the encouragement of the pharmaceutical industry it spends more than $30 billion a year on mostly basic research conducted through the National Institutes of Health. It could double or triple the amount of direct funding (which could be contracted with private firms like Glaxo Wellcome) with the condition that all findings are placed in the public domain.

This would eliminate all the distortions associated with patent monopolies, such as patent-protected prices that are can be more than one hundred times as much as the free market price. This would eliminate all the ethical dilemmas about whether the government or private insurers should pay for expensive drugs like Sovaldi, since the drugs would be cheap. It would also eliminate the incentive to mislead doctors and the public about the safety and effectiveness of drugs in order to benefit from monopoly profits.

It would be great to have an honest debate about the best way to finance drug research. The first step is to stop conflating government granted patent monopolies with the free market.

One important point that Ingram gets wrong in this piece is his claim that, "Prescription drugs account for only about 10% of U.S. health-care spending, according to the Centers for Disease Control and Prevention. This percentage has not changed since 1960 and is projected to remain the same for the next decade."

While spending on drugs is roughly the same share of health care spending as it was in 1960, this is a sharp recovery from the level of the early 1980s, when it was close to 5 percent. Furthermore, spending on pharmaceuticals rose by more than 10.0 percent in 2014, which means that currently they are growing rapidly as a share of total health care spending.

NHE2013 7704 image002

                    Source: Centers for Medicare and Medicaid Services.

 

 

 

Recent comments

  • Guest - M. Gamble

    I love reading your posts, but I have noticed that when talking patents pharmaceutical patents are always what is mentioned? I am curious is this a special category where you believe patents should be eliminated or are you against patents as a matter of course? I am a computer programmer by inclinat...
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  • Guest - Joe

    Response to comment to S Ken Brown: The only lawsuits I seem to have heard about are for cases where the risks were knowingly misrepresented or where unapproved use, known as off-label, was promoted by the drug company. Also, I think you'll find that outrageous final (not initially announced) settl...
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  • Guest - s ken brown

    Drug companies get their brains sued out constantly for product side effects. I bet they could trade tort reform for their drug monopolies. I guess they've done the math and can make more paying outrageous settlements but charging likewise outrageous prices. There's a social cost for this which I pr...
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